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TMI Blog2020 (9) TMI 773X X X X Extracts X X X X X X X X Extracts X X X X ..... /assessee is that as per Section 90 of the Act, the assessee is not liable to deduct the tax at source as the assessee did not make available any technical knowledge and therefore, the payment need not be treated as Fees for Technical Services. Admittedly, this point has not been raised before any of the authorities below, but for the first time, this point is raised as substantial question of law, hence, there is no occasion to deal with the said issue in this Tax Case Appeal. This is a fit case for remitting the matter back to the Assessing Officer for considering the issue by taking into account the claim made by the assessee. Assessing Officer, after giving due opportunity to the appellant, shall decide the matter in accordance with law. - T.C.A.No.527 of 2018 - - - Dated:- 15-9-2020 - HON'BLE MR. JUSTICE N. KIRUBAKARAN AND HON'BLE MR. JUSTICE P. VELMURUGAN For Appellant: Mr. N.V. Balaji For Respondent : Mr. Karthik Ranganathan, Standing Counsel JUDGMENT P. VELMURUGAN, J. The Tax Case Appeal is filed by the assessee as against the order of the Income Tax Appellate Tribunal Madras 'A' Bench dated 15.11.2017 made in ITA.No.74/Mds/2017. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... year 2013-14 has been filed by the appellant on 04.09.2013 declaring total income of ₹ 37,90,160/-. The said return was processed under Section 143(1) of the Income Tax Act, 1961 [hereinafter called as Act ] The case was selected for scrutiny under CASS and a notice under Section 143(2) was issued by the DCIT-Company Circle II(2) on 04.09.2014 which was duly served on the assessee on 24.09.2014. 2.2 For completion of pending scrutiny assessment for assessment year2013-14, notice under Section 143(2) r/w. Section 129 dated 28.07.2015 was duly issued and served on the assessee. A notice u/s.142(1) dated 28.07.2015 was also issued calling for details. 2.3 After discussing the case with the authorized representative of the assessee and considering the documents produced, the assessment was completed noticing that the amounts under the heads Prior Period Expenses , provision for Gratuity , disallowance u/s.40(a)(ia) , Sundry assets written off , Women's day celebration expenses , had been disallowed by the assessing officer, as they are not revenue in nature. Interest on total taxable income at ₹ 1,20,21,109/- was charged u/s.234, Demand Notice u/s.156 of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... able for deduction of tax at source under Chapter XVII-B of the IT Act. Since no tax has been deducted at source, Assessing Officer added ₹ 14,06,564/- u/s.40(a)(ia) being the liability includes ₹ 12,94,625/- and ₹ 2,44,598/- which is prior period expenses and proposed for addition. Even though, the assessee put forth its submission that the payments was made to non-resident company and the assessee company has not obtained any technology transfer, the CIT (Appeals), after going into the detailed submissions and the decisions relied on by the assessee, held that judicial decisions relied upon by the assessee are not relevant, to the facts of the case as the nature and purpose of payments made are entirely different. The CIT (Appeals) found that the entire edifice of assessee company's business operation, right down to the format and periodicity of Management Information Systems is provided by the Non-Resident, which falls within the realm of providing technical services. The only requirement of Section 9(i)(vii) is that fees for technical services is paid by a person, who is resident in India, and this fact is not in dispute. Hence, even if the non-resident pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ancillary and subsidiary to the application or enjoyment of a right, property or information for which are royalty payment is made; or (2) as described in paragraph 4(b), if they make available technical knowledge, experience, skill, know-how, or processes, or consist of the development and transfer of a technical plan or technical design. Thus, under paragraph 4(b), consultancy services which are not of a technical nature cannot be included services. Example 1 relates to facts that Indian company to use manufacturing processes in which the transferor has exclusive rights; as part of the contractual arrangement, the US manufacturer agrees to provide certain consultancy services to the Indian company in order to improve the effectiveness of the latter's use of the processes. The question that arose is that Are the payments for these services, fees for included services ? The Analysis says that the payments are fees for included services . The services described in this example are ancillary and subsidiary to the use of manufacturing process protected by law as described in paragraph 3(a) of Article 12 because the services are related to the application or enjoymen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Tax Appellate Authority but for the first time raised before this Court and the substantial questions of law raised in this Tax Case Appeal pertains to Section 90 of Income Tax Act. 12. Now the only question is that whether the disallowance u/s.40(a)(ia) of the Act, without considering the provisions of Section 90 of the Income Tax Act read with the Double Taxation Avoidance agreement between India and USA is correct? 13. Admittedly, the issue relating to Section 90 of the Income Tax Act read with Double Taxation Avoidance Agreement between India and United States of America has not been raised before the Assessing Officer or before the CIT (Appeals) or before the ITAT. But for the first time, the appellant/assessee has raised the issue before this Court and the said issue has also been raised in the substantial questions of law. Therefore, there is no occasion to decide this issue viz., as to whether the disallowance under Section 40(a)(ia) of the Act, without considering the provisions of Section 90 of the Income Tax Act read with Double Taxation Avoidance Agreement between India and USA, is correct or not, since the said point has not been discussed before the authorities ..... X X X X Extracts X X X X X X X X Extracts X X X X
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